MALAYSIA AIRLINES STRATEGIC ANALYSIS

Malaysia Airline System (MAS) is one of the Government Linked Companies in Malaysia. For the past three years, MAS has been undergone dramatic changes that turnaround the position of the company inside the competitive and ever challenging airline industry. From its lowest and disastrous experience in 2005 to achieving success within 2 years as well as bracing the impact of global economic crisis in past two years. The purpose of this report is to analyze MAS key competitive position and its strategic decision effectiveness and give recommendation in order for MAS to sustain its competitive position.

1.0 EXTERNAL ANALYSIS

1.1 Remote Environment

The remote environment factors are summarized in Appendix B.

1.1.a) Economic

The year 2008 was the toughest year that MAS and the entire airline industries had encountered. Firstly, MAS was hit by the high fuel price in the first 8 to 9 months of the year which had increases up to USD$182 per barrel and affected the overall operating cost. Later, while MAS were figuring out the solution to this problem, once again MAS was slammed by the economic crisis and downturn which pressured the yield and profit margin. The world's economy today is also being treated by the uncertainty and volatilities which can affect share price and trust from the shareholders.

1.1.b) Social

As a developing country, Malaysia has increase the number of professionals who earn more and travel much more frequently overseas. Thus, they want the services that can offer them time efficiency and good services. MAS has responded to them by offering business class ticket that offer the 5-stars services. However the world recently has been shocked with the wave of Influenza A (H1N1 virus) global pandemic and the increasing rate of terrorist attack. These situational factors have somewhat changed the perception of airline travellers to some degree by claiming that it is no longer safe to travel by air. Due to this many people are reconsidering their travel plan thus affecting the airline industry. MAS have to respond by investing in the security to protect the impact of the influenza virus and the threat of possible terrorist attack. However, having a security measures that is too stringent could be problematic as more time will be consumed and will challenge the customer's patience.

1.1.c) Political

Before Dato' Seri Idris Jala became the CEO of MAS, MAS was having the worst financial crisis in 50 years history. The crisis was very deep as MAS just had enough cash to last for three-and-a-half months. Idris Jala was appointed by the government to take over MAS even though he has no experience in airline industry. Idris Jala sets a condition that he wants 50% freedom from the government before undertaking the leadership. One of the major problems MAS was facing was the government intervention which required MAS to fly routes that didn't make any commercial sense and MAS, as a GLC had no choice but to abide to the requirement. Idris Jala who had proven track records from his previous company Shell finally was able to cut off unprofitable routes and this proved to be beneficial to MAS in regaining its position in the industry. Some government policy and initiatives also benefited MAS. In 2008 the government provided 50% rebate on landing charges for airlines under its stimulus plan. Additionally, the Malaysia government through its Ministry of Tourism has been focusing on the development of hospitality and tourism industry in Malaysia and has also been actively promoting Malaysia as a tourists' destination. Another example of the step taken by the government was to make KLIA a regional air hub and the launching of ERL system to connect Kuala Lumpur city with the airport (KLIA) in Sepang. The initiative has benefited MAS in terms of a way to increase the passenger count. The impact of government's policy and initiatives had both indirectly and directly provide positive impact to MAS in some way or another.

1.1.d) Technological

The rising of Information Technology and Information System can benefit MAS to operate their business whereby MAS could exploit this technology in creating more efficient network management which will lead to reduction in operational cost. Technology is helping MAS to reduce cost, but more importantly, it also adds value to the customers. MAS was replacing KOMMAS Reservation System with the new SITA RES system. Using the new system, customers are assured that their booking and e-ticket information will always be available at check-in. In addition, MAS is also able to offer customers more and better self-service options through its website.